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By William Rusteberg
“Employers pick the insurance company and choose the benefits available to employees. There may be one plan or several plans. Employers can also require employees to take the employer’s health plan and to pay their share of the costs.…….” Oregon Department of Insurance
Health insurance has always been a payroll cost – in lieu of paying employees more they are paid less with the difference going to the insurance company (http://blog.riskmanagers.us/?p=11772). There is nothing transparent about this in eyes of employees. They continue in the belief that “employer paid health insurance” is employer paid when in fact it is they who effectively fuel the expense.
Maybe it’s time for employers to be more forthcoming with their valued employees.
With the passage of the Affordable Care Act the time has never been better Under ACA employees can be charged as much as 9.5 percent of gross pay towards the cost of insurance. Instead of hiding this expense on the employer side of the ledger, it can be shown on the employee side where it has always belonged.
An employer can take full advantage of the ACA mandate on “affordability” by lawfully charging 9.5% of an employee’s gross income as a health insurance premium expense instead of hiding the expense in the form of lower pay. The same result occurs in either case, but the later is more transparent and honest. Explaining this to employees will be challenging to HR so that responsibility and “blame” may be deflected to the “Democrats in Washington.” Blaming government may never be more popular. Finger pointing is a time-proven HR strategy.
Controlling Payroll Costs
Employers who self-fund will achieve greater savings over time than one who fully-insures.
Reimbursing medical providers on the same level as Medicare makes sense as government interference in our health care delivery system has never been greater. Nothing in ACA precludes a plan sponsor from determining reimbursement levels for medical care. If challenged, how can anyone argue that a plan sponsor must pay more than Medicare rates? If it’s good for government beneficiaries, it should be good for rest of us who fund government entitlements.
Since ACA mandates benefits, all medical plans in this country will be based on three benefit levels: Bronze, Silver and Gold.
The Bronze Plan with a $6,000 front end deductible, using Medicare reimbursement rates on a self funded platform, will provide minimum compliance at the lowest possible cost and avoidance of all punishing ACA taxes.
Average PEPY cost could be expected to be half of national average or approximately $3,000 or less.
For budgeting purposes, a plan sponsor can multiply total payroll (minus workers less than 30 hour per week) by 9.5% and apply the “credit” against expected claims and fixed costs. The balance, if any, would appear on the employer’s side of the ledger.
If, for example, the average payroll is $35,000, and there are 150 employees, the employee funding of 9.5% equals $498,750 or $3,325 per employee per year. This should be enough to fund 100% of the Bronze plan for employee based on industry averages.
We are undergoing fundamental change in our health care delivery system. Many changes are good and long overdue. It’s time consumers understand that nothing s free, including health care. That’s the message many employers will announce to their employees in 2014- 2015.
Sample Employer Announcement
“Effective on our health insurance renewal, all employees will be required to enroll on our group medical plan as a condition of employment (unless you have coverage elsewhere). ACA regulations allow an assessment 9.5% of gross pay towards the cost of our group health plan. Therefore, effective April 1, 2014 (pick a date) your gross pay will reduce 9.5% with the proceeds credited to our group health plan.
Since our plan is self-funded, plan surplus, if any, will be assessed at the end of each year’s accounting period. Some or all surplus may be applied towards our matching contributions to your 401k Plan, or deposited into a Health Savings Account for the following plan year.”
If enough employers sent this announcement out to their employees in October, 2014, the November elections may be significantly impacted……………
